Foreclosure of your family home may be one of the most stressful events you ever have to bear. When your home is in jeopardy, it seems like there is nothing more they can take from you. Unfortunately, that may not be the case. If your home value has declined substantially, and the bank cannot recoup what you owe at the foreclosure sale, in North Carolina, the bank can sue you for the difference. So, you could be faced not only with a foreclosure but also a lawsuit where the bank is seeking to collect the balance of what was owed on the Note.
Sounds like banks are having their cake and eating it too? Well, North Carolina lawmakers thought so too. And, in 2009 the NC General Assembly enacted a new Anti-Deficiency Statute (N.C.G.S. 45-21.38A) to add protections for consumers and homeowners. The new Anti-Deficiency Statute was enacted on October 1, 2009 and applies to actions filed on or after that date.
The new statute abolishes deficiency judgments in most cases where the property secured is the borrower’s primary residence. It applies to loans that were originated on or after January 1, 2005. The loan amount and type of loan also has to meet certain Fannie Mae guidelines to qualify for this exemption. Basically, the loan must have been a “rate spread loan” or a nontraditional mortgage. The statute does not provide relief for home equity lines of credit, construction loans, reverse mortgages or bridge loans. The statute even includes a clause giving the Court discretion to award attorneys’ fees to borrowers who prevail in a suit against a lender for wrongful deficiency brought under this statute.
The “old” NC anti-deficiency statute (N.C.G.S. 45-21.38) abolishes deficiency judgments where the seller of the property holds a purchase money Note and Deed of Trust. This law’s application is much more limited, but still aids a buyer/borrower in avoiding a deficiency judgment if they default on a seller-held mortgage. A seller-mortgagee is only entitled to recover the real property offered as security in an action for foreclosure, and cannot additionally pursue a separate action for a deficiency.
All in all, the new NC anti-deficiency statute may not help all homeowners, but it seeks to aid those who where most impacted by the “bad loans” granted to homeowners in the boom of the housing market. At least those homeowners will escape additional financial strain of a monetary judgment once they have lost their homes to foreclosure. In these tough economic times, we must count our blessings – and be aware of new laws, both state and federal, that are out there to help consumers and homeowners to recovery.
